SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(6)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Monterey Bay Bancorp, Inc.
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(Name of Registrant as Specified in Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of class of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule, or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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MONTEREY BAY BANCORP, INC.
567 Auto Center Drive
Watsonville, California 95076
(831) 768-4800
April 9, 2002
Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Monterey Bay Bancorp, Inc. (the "Company"), the holding
company for Monterey Bay Bank (the "Bank"), which will be held on Thursday, May
23, 2002, at 9:00 a.m., Pacific Time, at the Watsonville Women's Club, 12
Brennan Street, Watsonville, California 95076.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement describe the formal business to be transacted at the Annual Meeting.
The Company's Directors and Officers, as well as a representative of Deloitte &
Touche LLP, the Company's independent auditors, will be present at the Annual
Meeting to respond to any questions that stockholders may have regarding the
business to be transacted. A copy of the Company's 2001 Annual Report to
Stockholders, which contains audited financial statements and certain other
information about the Company's business, is also enclosed.
The Company's Board of Directors has determined that the matters to be
considered at the Annual Meeting are in the best interests of the Company and
its stockholders. For the reasons set forth in the Proxy Statement, the Board
unanimously recommends that you vote "FOR" each matter to be considered.
Your cooperation is appreciated because a majority of the common stock must
be represented, either in person or by proxy, to constitute a quorum for the
conduct of business. Whether or not you expect to attend, please sign, date, and
return the enclosed proxy card promptly in the postage-paid envelope provided so
that your shares will be represented.
On behalf of the Board of Directors and all of the employees of the Company
and the Bank, thank you for your continued interest and support.
Sincerely yours,
/s/ McKenzie Moss
McKenzie Moss
Chairman of the Board
MONTEREY BAY BANCORP, INC.
567 Auto Center Drive
Watsonville, California 95076
(831) 768-4800
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 23, 2002
-------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Monterey Bay Bancorp, Inc. (the "Company") will be held on May 23,
2002 at 9:00 a.m., Pacific Time, at the Watsonville Women's Club, 12 Brennan
Street, Watsonville, California, 95076.
The purpose of the Annual Meeting is to consider and vote upon the
following matters:
1. The election of four Directors to terms that will expire in 2004 or 2005;
2. The ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 2002; and
3. Such other matters as may properly come before the Annual Meeting and at
any adjournments thereof, including whether or not to adjourn the meeting.
Only record holders of the Company's common stock as of the close of
business on March 25, 2002 will be entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof. If there are not sufficient votes
for a quorum or to approve or ratify any of the foregoing proposals at the time
of the Annual Meeting, the Annual Meeting may be adjourned to permit further
solicitation of proxies by the Company. A list of stockholders entitled to vote
at the Annual Meeting will be available at Monterey Bay Bancorp, Inc., 567 Auto
Center Drive, Watsonville, California 95076, for a period of ten days prior to
the Annual Meeting and will also be available at the meeting itself.
By Order of the Board of Directors
/s/ Mary Anne Carson
Mary Anne Carson
Corporate Secretary
Watsonville, California
April 9, 2002
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Whether or not you expect to be present at the Annual Meeting, please fill in,
date, sign, and promptly return the enclosed proxy card in the enclosed business
reply envelope, which requires no postage if mailed in the United States. The
proxy may be revoked at any time prior to exercise, and if you are present at
the Annual Meeting, you may, if you wish, revoke your proxy at that time and
exercise the right to vote your shares personally.
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MONTEREY BAY BANCORP, INC.
--------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2002
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Solicitation and Voting of Proxies
This Proxy Statement is being furnished to stockholders of Monterey Bay
Bancorp, Inc. (the "Company") in connection with the solicitation by the Board
of Directors of the Company (the "Board" or "Board of Directors") of proxies to
be used at the annual meeting of stockholders (the "Annual Meeting"), to be held
on May 23, 2002, at 9:00 a.m., Pacific Time, at the Watsonville Women's Club, 12
Brennan Street, Watsonville, California, 95076, and at any adjournments thereof.
The 2001 Annual Report to Stockholders, including consolidated financial
statements for the fiscal year ended December 31, 2001, and a proxy card
accompanies this Proxy Statement, which is first being mailed to record holders
on or about April 9, 2002.
Regardless of the number of shares of common stock owned, it is important
that record holders of a majority of the outstanding shares of common stock be
represented by proxy or in person at the Annual Meeting. Stockholders are
requested to vote by completing the enclosed proxy card and returning it signed
and dated in the enclosed postage-paid envelope. Stockholders are urged to
indicate their vote in the spaces provided on the proxy card. Proxies solicited
by the Company's Board of Directors will be voted in accordance with the
directions given therein. Where no instructions are indicated, signed proxy
cards will be voted FOR the election of each of the nominees for Director named
in this Proxy Statement and FOR the approval of each of the specific proposals
presented in this Proxy Statement.
Other than the matters set forth on the attached Notice of Annual Meeting
of Stockholders, the Board of Directors knows of no additional matters that will
be presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. If you are a stockholder
whose shares are not registered in your own name, however, you will need
appropriate documentation from your record holder to vote personally at the
Annual Meeting.
The cost of solicitation of proxies on behalf of the Board of Directors
will be borne by the Company. Proxies will also be solicited personally or by
mail or telephone by Directors, Officers, and other employees of the Company and
its subsidiary, the Bank, without additional compensation therefor. The Company
will also request persons, firms, and corporations holding shares in their
names, or in the name of their nominees, that are beneficially owned by others
to send proxy material to and obtain proxies from such beneficial owners and
will reimburse such holders for their reasonable expenses in doing so.
1
Voting Securities
The securities that may be voted at the Annual Meeting consist of shares of
the Company's common stock, par value $0.01 per share ("Common Stock"), with
each share entitling its owner to one vote on all matters to be voted on at the
Annual Meeting, except as described below. There is no cumulative voting for the
election of Directors.
The close of business on March 25, 2002, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
entitled to vote on the Record Date was 3,483,718 shares.
In accordance with the provisions of the Company's Certificate of
Incorporation, record holders of Common Stock who beneficially own in excess of
10% of the outstanding shares of Common Stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. A person or
entity is deemed to beneficially own shares owned by an affiliate of, as well as
by persons acting in concert with, such person or entity. The Board of Directors
is authorized (i) to make all determinations necessary to implement and apply
the Limit, including determining whether persons or entities are acting in
concert, and (ii) to demand that any person who is reasonably believed to
beneficially own stock in excess of the Limit supply information to enable the
Board of Directors to implement and apply the Limit.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after giving
effect to the Limit described above, if applicable) is necessary to constitute a
quorum at the Annual Meeting. If there are not sufficient votes for a quorum, or
to approve or ratify any matter being presented at the time of the Annual
Meeting, the Annual Meeting may be adjourned to permit the further solicitation
of proxies.
As to the election of Directors, the proxy card being provided by the Board
of Directors enables a stockholder to vote "FOR" the election of the nominees
proposed by the Board of Directors or to "WITHHOLD AUTHORITY" to vote for one or
more of the nominees being proposed. Under Delaware law and the Company's
Bylaws, Directors are elected by a plurality of votes cast, without regard to
either broker non-votes or proxies as to which authority to vote for one or more
of the nominees being proposed is withheld.
As to the ratification of Deloitte & Touche LLP as independent auditors of
the Company and all other matters that may properly come before the Annual
Meeting, by checking the appropriate box, a stockholder may: (i) vote "FOR" the
item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on the item.
Under the Company's Bylaws, unless otherwise required by the Certificate of
Incorporation or by law, the ratification of auditors and other matters shall be
determined by a majority of the votes cast, without regard to either broker
non-votes or proxies marked "ABSTAIN" as to that matter.
Proxies solicited hereby will be returned to the Company's transfer agent
and will be tabulated by inspectors of election designated by the Board of
Directors, who will not be employed by, or a Director of, the Company or any of
its affiliates.
2
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to those persons believed by
the Company to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
regarding such ownership filed by such persons with the Company and with the
Securities and Exchange Commission ("SEC"), in accordance with Sections 13(d)
and 13(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act").
Other than those persons listed below, the Company is not aware of any person,
as such term is defined in the Exchange Act, who owns more than 5% of the
Company's Common Stock as of the Record Date.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
-------------------------------------------------- -------------------------------- -------------------
Josiah T. Austin 525,062 (1) 15.07%
El Coronado Holdings, LLC
Star Route 395
Pearce, Arizona 85625
Monterey Bay Bank Employee 296,727 (2) 8.52%
Stock Ownership Plan ("ESOP")
567 Auto Center Drive
Watsonville, California 95076
Kahn Brothers & Company, Inc. 242,324 (3) 6.96%
555 Madison Avenue, 22nd Floor
New York, New York 10022
Endicott Partners 187,475 (4) 5.38%
237 Park Avenue, Suite 801
New York, New York 10017
-----------------------------------
(1) Based upon information contained in a Schedule 13D filed by Mr. Austin with
the SEC on November 19, 2001 pursuant to the Securities Exchange Act of
1934 and upon other information supplied by Mr. Austin to the Company.
(2) CNA Trust Corporation, Costa Mesa, California has been appointed as the
corporate trustee for the ESOP ("ESOP Trustee"). The ESOP Trustee, subject
to its fiduciary duty, must vote all allocated shares held in the ESOP in
accordance with the instructions of the participants. At December 31, 2001,
296,727 shares were retained under the ESOP. Unallocated shares and
allocated shares for which no voting instructions are received will be
voted by the ESOP Trustee in a manner calculated to most accurately reflect
the instructions received from participants regarding the allocated stock
so long as such vote is in accordance with the ESOP Trustee's fiduciary
duty.
(3) Based upon information contained in Schedule 13G filed with the SEC on
February 4, 2002 pursuant to the Securities Exchange Act of 1934.
(4) Based upon information contained in Schedule 13G filed with the SEC on
January 17, 2002 pursuant to the Securities Exchange Act of 1934.
3
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors of the Company consists of nine Directors divided
into three classes. Each of the nine members of the Board of Directors of the
Company also presently serve as Directors of the Bank. Except as noted below,
Directors are elected for staggered terms of three years each, with the term of
office of only one of the three classes of Directors expiring each year.
Directors serve until their successors are elected and qualified.
The Board has nominated Larry A. Daniels for election to a two-year term
and Steven Franich, Stephen G. Hoffmann, and Gary L. Manfre for election to
three-year terms. Information on these nominees is set forth below.
If any nominee is unable to serve or declines to serve for any reason, it
is intended that the proxies will be voted for the election of such other person
as may be designated by the present Board of Directors. The Board of Directors
has no reason to believe that any of the persons named will be unable or
unwilling to serve. Unless otherwise indicated or authority to vote for the
election of any nominee is withheld, it is intended that the shares represented
by the enclosed proxy card, if executed and returned, will be voted FOR the
election of the nominees proposed by the Board of Directors.
Directors are elected by a plurality of the votes cast by the holders of
the shares entitled to vote in an election at a meeting at which a quorum is
present. A majority of the votes entitled to be cast on a matter constitutes a
quorum. Abstentions and broker non-votes would be included in determining
whether a quorum is present at a meeting, but would not have an effect on the
outcome of a vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
Information with Respect to the Nominees and Continuing Directors
The following table sets forth, as of the Record Date, the names of the
nominees and continuing Directors of the Company; their ages; a brief
description of their recent business experience, including present occupations
and employment; certain directorships held by each; the year in which each
became a Director of the Company; and the year in which their terms (or in the
case of the nominees, their proposed terms) as Director of the Company expire.
The table also sets forth the amount of Common Stock, and the percent thereof,
beneficially owned by each and by all Directors and Executive Officers as a
group as of the Record Date. Unless otherwise noted, each person exercises sole
(or shares with an immediate family member) voting or dispositive power as to
the shares reported. Percentages are based upon 3,483,718 shares outstanding as
of the Record Date.
4
Name and Principal Expiration Shares of Common Percent
Occupation at Present Director of Term as Stock Beneficially of
And for Past Five Years Age(1) Since(2) Director Owned Class
---------------------------------------------- -------- ----------- -------------- ---------------------- ----------
NOMINEES
--------
Larry A. Daniels 60 2001 2004 6,217(3) *
President
Daniels and House Construction Company
Monterey, California
Steven Franich 55 1989 2005 75,404(4) 2.16%
President
Marty Franich Auto Dealerships
Watsonville, California
Stephen G. Hoffmann 57 1997 2005 8,414(5) *
President and CEO
Canyon National Bank
Palm Springs, California
Gary L. Manfre 48 1993 2005 36,399(6) 1.04%
Treasurer
Watsonville Coast Produce, Inc. Watsonville,
California
CONTINUING DIRECTORS
--------------------
Josiah T. Austin 54 1999 2003 525,062(7) 15.07%
Rancher and Private Investor
El Coronado Ranch
Pearce, Arizona
Edward K. Banks 53 1993 2004 20,652(8) *
Chief Executive Officer
Pajaro Valley Insurance Agencies, Inc.
Watsonville, California.
Diane Simpkins Bordoni 48 1998 2003 8,622(9) *
Chief Financial Officer
System Studies Incorporated
Santa Cruz, California
C. Edward Holden (Vice Chairman) 54 2000 2004 76,323(10) 2.19%
President and Chief Executive Officer
Monterey Bay Bancorp
Monterey Bay Bank
Watsonville, California
McKenzie Moss (Chairman) 71 1996 2003 17,155(11) *
Financial & Strategic Planning Consultant;
University Instructor and Lecturer; Writer;
Retired Bank Executive
Stock ownership of all directors and 904,688(12) 25.97%
executive officers as a group (13 persons)
5
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(1) Age of Director as of the record date.
(2) Includes years of service as a Director of the Bank prior to the formation
of Monterey Bay Bancorp, Inc.
(3) Includes 1,500 stock options that are either vested or will vest within 60
days of the record date.
(4) Includes 8,000 stock options that are either vested or will vest within 60
days of the record date.
(5) Includes 3,466 stock options that are either vested or will vest within 60
days of the record date
(6) Includes 9,000 stock options that are either vested or will vest within 60
days of the record date.
(7) Includes 1,500 stock options that are either vested or will vest within 60
days of the record date. Mr. Austin has sole voting power of 50,907 shares
and shared voting power of 474,155 shares
(8) Includes 15,501 stock options that are either vested or will vest within 60
days of the record date. Mr. Banks disclaims beneficial ownership of 468
shares owned by his spouse and son and 358 shares owned by his other son.
(9) Includes 3,500 stock options that are either vested or will vest within 60
days of the record date.
(10) Includes 54,972 stock options that are either vested or will vest within 60
days of the record date.
(11) Includes 6,965 stock options that are either vested or will vest within 60
days of the record date.
(12) Includes 178,354 stock options that are either vested or will vest within
60 days of the record date.
* Represents less than 1% of the Company's voting securities.
Meetings of the Board of Directors and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the Board
of Directors and through activities of its committees. The Board of Directors
meets monthly and may have additional meetings as needed. During fiscal 2001,
the Company's Board of Directors held twelve regular meetings and one special
meeting. All of the Directors of the Company attended at least 75% of the
Company's regular monthly Board meetings held during fiscal 2001. The Boards of
Directors of the Company and the Bank maintain committees, the nature and
composition of which are described below:
Audit Committee. The Audit Committee of the Company currently consists of
Ms. Bordoni (Chairman), Mr. Franich, Mr. Hoffmann, and Mr. Moss, all of whom are
outside Directors. Membership of the Audit Committee was restructured in 2001
due to the resignation of one Director. The Audit Committee meets as called by
the Chairman and met twelve times in fiscal year 2001. The purpose of the Audit
Committee is to provide assurance that financial disclosures made by management
portray the Company's financial condition and results of operations. The Audit
Committee also maintains a liaison with the outside auditors and reviews the
adequacy of internal controls. The Audit Committee of the Bank met twelve times
in fiscal 2001. The Audit Committee Report is set forth on page 17.
Nominating Committee. The Company's Nominating Committee for the 2002
Annual Meeting consists of Mr. Moss (Chairman), Mr. Banks, Ms. Bordoni, and Mr.
Holden. The Nominating Committee considers and recommends the nominees for
Director to stand for election at the Company's annual meeting of stockholders.
The Company's Certificate of Incorporation and Bylaws also provide for
stockholder nominations of Directors. These provisions require such nominations
to be made pursuant to timely notice in writing to the Secretary of the Company.
The stockholder's notice of nomination must contain all information relating to
the nominee that is required to be disclosed by the Company's Bylaws and by the
Exchange Act. The Nominating Committee met twice in fiscal 2001 and once in 2002
to determine the slate of directors for election at the Annual Meeting.
6
Compensation/Benefits Committee. The Compensation/Benefits Committee of the
Company consisted of Messrs. Bachan (Chairman), Austin, Banks, Hoffmann, and
Manfre through May 25, 2001, at which time Mr. Bachan retired as a Director and
the membership was restructured to its current composition of Messrs. Manfre
(Chairman), Austin, Hoffmann, and Moss. The Compensation/Benefits Committee also
serves as the ESOP Committee. This Committee meets to establish compensation for
the Chief Executive Officer, to approve compensation and benefits to be paid to
employees, as needed, and to review the incentive compensation programs when
necessary. The Compensation/Benefits Committee met eleven times in fiscal 2001.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, Officers, Directors, and
beneficial owners of more than 10% of the Common Stock are required to file
reports on Forms 3, 4, and 5 with the SEC concerning their beneficial ownership
of the Common Stock, as well as to report certain changes in such beneficial
ownership. Based upon the Company's review of such reports, no Officer,
Director, or beneficial owner of more than 10% of the Common Stock failed to
file required reports on Forms 3, 4, or 5 on a timely basis for the fiscal year
ended December 31, 2001, with the exception of a late filing of an initial Form
3 for Ms. Carlson who was hired in June 2001.
Director Compensation
There are a number of different elements associated with Director
compensation including:
Directors' Fees. Directors of the Company who are not also employees of the
Company receive a retainer of $190.00 per month for serving on the Company's
Board of Directors. In 2001, the monthly retainer for service on the Board of
Directors of the Bank by Directors who are not also employees of the Bank was
$1,615.00. All members of the Board of Directors of the Bank are also members of
the Board of Directors of Portola Investment Corporation ("Portola"), a
wholly-owned subsidiary of the Bank. All members of the Board of Directors of
Portola, if they are not also employees of the Bank, receive a monthly retainer
fee of $95.00. The Chairman of the Board receives an additional $1,100 per month
in total Directors fees. No committee meeting fees are paid and committee
Chairmen receive no additional compensation. Directors are also eligible to
receive travel reimbursement of up to $300.00 for each regular or special board
meeting attended.
Stock Award Plan for Outside Directors. The Company maintains the Monterey
Bay Bancorp Stock Award Plan for Outside Directors which provides Directors with
the opportunity to elect to receive shares of stock of the Company in lieu of
cash retainer fees for serving as a Director of the Company or any of its
subsidiaries as an additional incentive to promote the Company's success. All
current Directors have made the election to receive the regular monthly retainer
fees in the form of Company Common Stock.
7
Directors' Stock Option Plan. Until December 31, 1999, the Company granted
options under the 1995 Stock Option Plan for Outside Directors (the "Directors'
Option Plan"). Under this Plan, Directors who were not officers or employees of
the Company or Bank could be granted non-statutory stock options to purchase
shares of Common Stock. Each option awarded entitled the holder to purchase one
share of Common Stock at the fair market value of the Common Stock on the date
of grant. All options granted under the Plan began vesting in five equal annual
installments on the first anniversary of the date of the grant, provided,
however, that in the event of death or disability of the participant or, to the
extent not prohibited by the Office of Thrift Supervision ("OTS"), upon a change
in control of the Company or the Bank, all options previously granted would
automatically become exercisable.
As of December 31, 1999 all non-statutory stock options available for grant
under the Plan had been granted. Since that time, option awards to Directors
have been made from the Amended 1995 Incentive Stock Option Plan. See "Incentive
Stock Option Program," on page 10. In 2001, a total of 19,500 non-statutory
options were granted to outside Directors.
Director Emeritus Program. To recognize and reward Directors for their
years of service and overall contribution to the Company, in March of 2000, the
Board of Directors adopted the Director Emeritus Program, effective as of May
25, 2000. The Program allows individual Directors who have served at least nine
years (three terms of three years) to retire between the ages of 65 and 72. The
Bylaws of the Company provide that all Directors must retire from the Board of
Directors no later than December 31 of the year in which they attain an age of
72. Eligible Directors receive a title of Director Emeritus and a cash payment
equal to the annual retainer at the current rate as recognition of their
contribution and years of service to the Company and the Bank. In addition,
option awards made to a Director that have not yet vested when the Director
becomes a Director Emeritus will continue to vest in accordance with their
original vesting schedule, with no change in expiration date.
Certain Relationships and Related Transactions
Monterey Bay Bancorp, Inc., through its subsidiary Monterey Bay Bank, has
had and expects in the future to have banking transactions in the ordinary
course of business with the Company's Directors or associates of the Company's
Directors. The Company may also have banking transactions with corporations of
which our Directors may own a controlling interest, or also serve as directors
or officers. These transactions have taken place and will take place on
substantially the same terms, including interest and collateral, as those
prevailing for comparable transactions with others. The Company believes that
these transactions involving loans did not present more than normal risk of
noncollectibility or present other unfavorable features.
8
Compensation / Benefits Committee Report on Executive Compensation
Administration / General
The Compensation/Benefits Committee of the Board provides overall guidance
regarding executive compensation programs and reviews recommendations of
management for compensation and benefits for other officers and employees of the
Bank.
The current members of the Committee are: Messrs. Manfre (Chairman),
Austin, Hoffmann, and Moss. The President / Chief Executive Officer and the
Senior Vice President / Chief Administrative Officer currently serve as
non-voting advisors to the Committee.
Compensation Philosophy
The goals and objectives of the Bank's compensation program include:
o To provide motivation for the executive officers to enhance stockholder
value by linking their compensation to the value of the Common Stock;
o To integrate total compensation with the Company's short-term and long-term
performance goals and the objective of increasing stockholder value;
o To attract high performing executive officers by providing total
compensation opportunities which are consistent with externally competitive
norms of the financial services industry and the Company's level of
performance;
o To retain qualified executives vital to the success of the organization;
o To reward above average individual and corporate performance as measured by
financial results and strategic achievements; and
o To maintain reasonable fixed compensation costs by targeting base salaries
at a competitive average.
The Company's compensation strategy includes a mix of compensation
elements, including: base salary; short-term incentive compensation; and
long-term incentives (including stock options and stock awards). Executive
officers also participate in various non-qualified and qualified employee
benefit plans designed to provide retirement income, such as the ESOP and the
401(k) plan.
Base Salary. The relative levels of base salary for the executive officers
are designed to reflect each executive officer's scope of responsibility and
accountability within the organization. To determine the necessary amounts of
base salary to attract and retain top quality management, the
Compensation/Benefits Committee reviews comparable salary and other compensation
arrangements in effect. Further, the Compensation/Benefits Committee considers
the entire compensation package, including the equity compensation to be
provided under the Company's stock plans, of the executive officers.
Cash Incentive Bonus Plan. The Compensation/Benefits Committee approved the
Officers Incentive Compensation Plan (OICP) in March 2001 for fiscal 2001.
Qualified officers of the Bank are eligible for cash incentive awards if the
Company achieves certain objectives. In 2001, the Company achieved these
objectives. OICP is subject to annual approval by the Compensation/Benefits
Committee and was approved for 2002 in February 2002.
9
Incentive Stock Option Program. The Compensation/Benefits Committee
believes that stock ownership is a significant incentive in building
stockholders' wealth and aligning the interests of Directors, employees, and
stockholders. Officers and other employees of the Company or its affiliates and
Directors are eligible to participate in the Amended 1995 Incentive Stock Option
Program. Incentive or non-statutory stock options are awarded to officers based
upon, in part, the officers' level of responsibility and contributions to the
Company and the Bank. Under the Plan, each option entitles the holder to
purchase one share of Common Stock at 110% of the fair market value of the
Common Stock on the date of the grant. Each option awarded prior to the Plan's
amendment on May 25, 2000 entitled the holder to purchase one share of the
Common Stock at its fair market value on the date of grant. Stock options vest
over a time period determined by the Board of Directors, typically ratably over
five years commencing at the first anniversary of the date of the grant.
The vesting of awarded stock options is accelerated in the event of a
change in control of the Company or of the Bank. Information regarding grants of
options or stock appreciation rights to the Named Executive Officers, as defined
on page 14, is set forth in the "Option Grants in Last Fiscal Year" table
included herein.
Stock Award Program. The Company maintains a Performance Equity Program
("PEP") for officers that was originally adopted in 1995. The purpose of PEP is
to provide officers with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with the Company and to improve the
financial performance of the Company.
The PEP provides for two types of awards: time-based grants and
performance-based grants. Time-based grants vest pro-rata on each anniversary of
the grant date and become fully vested over the applicable time period as
determined by the Board of Directors, typically over five years. Vesting of
performance-based grants is dependent upon achievement of criteria established
by the Board of Directors for each stock award. During calendar year 2001, the
following members of the Bank's executive management opted to receive certain
performance related base salary merit increases in Common Stock in lieu of cash:
Messrs. Andino, Holden, and Tinkey. Also in 2001, Messrs. Holden and Andino
opted to receive 4,000 PEP and 3,348 PEP share payouts of Common Stock in lieu
of certain cash for their incentive compensation through the OICP for 2001. See
"Cash Incentive Bonus Plan" on page 9.
Vesting of stock awards under the PEP accelerate in the event of a change
in control of the Company or the Bank.
Compensation of the Chief Executive Officer and President. After taking
into consideration the total compensation review as described earlier, the
Compensation/Benefits Committee determined to pay the Chief Executive Officer,
C. Edward Holden, a base salary of $247,500 for fiscal 2001. In 2001, Mr. Holden
also received a bonus and additional stock options as presented in the "Summary
Compensation Table." In addition, in early 2002, Mr. Holden received an
extraordinary cash bonus of $40,000 and an increase in his base salary to
$257,500 in recognition of his performance and his contributions to the Company
and Bank.
Compensation/Benefits Committee
Gary L. Manfre, Chair
Josiah T. Austin
Stephen G. Hoffmann
McKenzie Moss
10
Stock Performance Graph. The following graph shows a comparison of
cumulative total shareholder return on the Common Stock, based on the market
price of the Common Stock with the cumulative total return of companies in the
Nasdaq National Market and SNL Thrift Stocks for the period beginning on
December 31, 1996 through December 31, 2001. The graph reflects the historical
performance of the Common Stock, and, as a result, may not be indicative of
possible future performance of the Common Stock. The data was supplied by SNL
Securities.
Comparison of Cumulative Total Returns
December 31, 1996 - December 31, 2001
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Monterey Bay Bancorp, Inc.
[GRAPHIC OMITTED]
Period Ending
------------------------------------------------------------------------
Index 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
------------------------------------------------------------------------------------------------------------
Monterey Bay Bancorp, Inc. 100.00 133.11 123.07 87.95 93.59 135.73
NASDAQ - Total US* 100.00 122.48 172.68 320.89 193.01 153.15
SNL Thrift Index 100.00 170.16 149.66 122.25 195.21 208.65
*Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago 2002. Used with permission. All rights
reserved. crsp.com.
SNL Financial LC (434) 977-1600
(C) 2002
11
The report of the Compensation Committee and the Stock Performance Graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 or the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
Executive Compensation
Employment Agreements. The Chief Executive Officer and President, Mr.
Holden, and the Senior Vice President and Chief Financial Officer and Treasurer,
Mr. Andino (collectively, the "Executives") each have employment agreements
among the individual, Monterey Bay Bancorp, Inc. and Monterey Bay Bank. The
Agreements provide for two-year terms and provide for yearly review for possible
extension. The base salaries of Messrs. Holden and Andino cannot be less than
$257,500 and $157,500 per year, respectively. In addition to base salary, the
Agreements provide for, among other things, participation in stock benefit plans
and other fringe benefits applicable to executive personnel.
The Executives can be terminated at any time by the Bank or the Company for
cause, as defined in the Agreements. In such case, the executive does not have
the right to receive compensation or other benefits for any period after
termination for cause. If the Bank or Company terminates Executive, actually or
constructively, due to (i) reduction of his title or status, (ii) material
reduction in his responsibilities, (iii) assignment of any duties inconsistent
with his title, duties or responsibilities in effect, (iv) material reduction in
compensation or benefits, (v) relocation of his principal place of employment by
more than 30 miles from its location, or (vi) significant increase in travel
requirements, or if the Bank or Company terminates his employment during the
term for any reason other than a termination governed by a change in control, or
termination for cause, the Bank shall be obligated to pay Executive within
thirty (30) days after his termination, or, in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, in a lump sum amount
equal to (i) the cost of providing medical and dental coverage through COBRA
continuation coverage, similar to the coverage in effect at the time of his
termination, for a period of one year, (ii) an amount equal to the then
currently targeted annual bonus as defined in the Cash Incentive Bonus Plan of
the Bank, regardless of the time of year such termination occurs and in
additional to any annual bonus earned but not yet paid for Executive's services
provided in a prior year, and (iii) the greater of an amount equal to the
Executive's then current year's base salary or the Executive's pro-rata base
salary for the remainder of the term of the Agreements.
The Executive may voluntarily resign or seek other gainful employment
provided that Executive gives not less than sixty (60) days prior written notice
of resignation. If the Executive determines to voluntarily resign other than in
conjunction with a change in control, a threatened change in control, or
constructive termination, Executive shall be entitled to no additional
compensation beyond those earned through the date of such voluntary resignation.
12
Under Mr. Holden's Agreement, if Mr. Holden's employment is terminated by
either a voluntary or involuntary termination in conjunction with a change in
control or threatened change in control, the Executive will continue to receive
his current base salary, including auto allowance, for a period of thirty-six
months from his date of termination including bonuses and any other cash
compensation paid or to be paid to him during such months and the amount of any
contributions made or to be made to any employee benefits plan or matching
contribution to its 401(k) plan as well as the financial equivalent of
thirty-six months worth of the Bank's contributions to any non-qualified
compensation or benefit plan. In addition, his health, dental and life insurance
benefits coverage would continue for thirty-six months and any stock options or
awards would become immediately vested. The Executive will receive from the Bank
a continuation of any employee mortgage loan rate discount for a period of the
lesser of thirty-six months or the maturity of the mortgage loan or a payment
equal to the employee loan rate discount in effect multiplied by three (3)
multiplied by the outstanding principal balance of the loan on the date of a
change in control. Mr. Andino's Agreement is substantially similar to Mr.
Holden's in regards to benefits under a change in control or a threatened change
in control, with the exception that references to a thirty-six month period are
replaced by a twenty-four month period.
Change in Control Agreements for Ms. Anderson, Ms. Carlson, Mr. Porter, and
Mr. Tinkey
The Bank and the Company have entered into Change in Control Agreements
with the Senior Vice-President and Chief Loan Officer, Ben Tinkey, the Senior
Vice-President and Director of Commercial Banking, David Porter, Senior Vice
President and Chief Administrative Officer, Susan Carlson, and Vice President
and Compliance Officer, Carlene Anderson (collectively, the "Officers"). The
Change in Control Agreements provide for a one-year term that may be extended
for a one year term on each anniversary date of the agreement. Under the Change
in Control Agreement, a "Change in Control" means, with certain exceptions, an
event of a nature that (1) would be required to be reported in response to Item
1(a) of the Current Report on Form 8-K pursuant to section 13 or 15(d) of the
Exchange Act or (2) results in a Change in Control within the meaning of the
Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated by the
OTS. In addition, a Change in Control will be deemed to have occurred at such
time as (A) any person is or becomes the beneficial owner of 25% or more of the
Company's or the Bank's outstanding securities, (B) the Board of Directors in
place on the date of the Change in Control Agreement (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, unless such
subsequent members are approved by a vote of at least three-fourths of the
Incumbent Board, (C) a plan of reorganization, merger, consolidation, or sale of
all or substantially all of the assets of the Company or the Bank occurs, or a
proxy is filed by someone other than current management relating thereto, in
which the Company or Bank is not the resulting entity, or (D) a tender offer is
made for 25% or more of the voting securities of the Company or the Bank.
Officers are eligible for change in control benefits if, within six months
following a Change in Control, (i) his or her employment is terminated other
than for cause (as defined in the Agreement), (ii) he/she suffers a material
detrimental alteration in authority or responsibility, demotion, or loss of
title, (iii) his or her compensation is reduced by 5% or more, or (iv) he/she is
relocated from his or her principal place of employment by more than 30 miles.
The change in control benefit will include a number of months of the
individual's current compensation, plus medical, dental, vision, short-term
disability, and long-term disability coverage for twelve months. The number of
months compensation for each individual is: 18 months for Mr. Porter, 12 months
for Messrs. Anderson and Tinkey, and 6 months for Ms. Carlson.
13
Summary Compensation Table. The following table shows, for the years ended
December 31, 2001, 2000, and 1999, the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for those years, to the Chief
Executive Officer and those Executive Officers of the Company and the Bank who
earned in excess of $100,000 during the fiscal year 2001 (the "Named Executive
Officers").
----------------------------- ---------------------------------------------- --------------------------- ----------------
(In Whole Dollars) Long-Term
Annual Compensation(1) Compensation Awards
----------------------------- ------- ---------- --------- ----------------- ----------- --------------- ----------------
Other Securities
Name and Principal Positions Annual Restricted Underlying All Other
Year Salary Bonus(2) Compensation(3) Stock(4) Options (#)(5) Compensation(6)
----------------------------- ------- ---------- --------- ----------------- ----------- --------------- ----------------
C. Edward Holden 2001 237,577 160,855 8,400 -- 15,000 --
Chief Executive Officer and 2000 150,000 55,190 18,856 -- 75,000 --
President(7)
----------------------------- ------- ---------- --------- ----------------- ----------- --------------- ----------------
Mark R. Andino 2001 148,841 66,983 -- -- 7,500 --
Senior Vice President 2000 135,000 15,000 -- 151,950 45,000 --
Chief Financial Officer
Treasurer(8)
----------------------------- ------- ---------- --------- ----------------- ----------- --------------- ----------------
Susan F. Grill 2001 112,376 -- 6,685 -- 10,000 --
Senior Vice President
Director of Retail Banking
President, Portola
Investment Corporation(9)
----------------------------- ------- ---------- --------- ----------------- ----------- --------------- ----------------
David E. Porter 2001 150,667 -- 12,402 -- 1,500 --
Senior Vice President 2000 26,042 -- 1,000 -- 20,000 --
Director of Commercial
Banking(10)
----------------------------- ------- ---------- --------- ----------------- ----------- --------------- ----------------
Ben A. Tinkey 2001 124,927 4,794 -- -- 1,500 --
Senior Vice President 2000 121,880 29,076 -- -- 5,000 20,876
Chief Loan Officer(11) 1999 95,888 -- -- -- -- 13,850
----------------------------- ------- ---------- --------- ----------------- ----------- --------------- ----------------
----------------------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the Named Executive Officer pursuant to the Bank's 401(k) Plan
pursuant to which employees may defer up to 25% of their compensation, up
to the maximum limits under the Internal Revenue Code of 1986 as amended.
(2) Includes cash and Common Stock in lieu of cash that was awarded as an
incentive and paid through the Company's Officer Incentive Compensation
Plan ("OICP"). Also includes Common Stock received in lieu of certain
salary compensation.
(3) For fiscal years ending in 2001, 2000, 1999 there were no (a) perquisites
over the lesser of $50,000 or 10% of the individual's total salary and
bonus for the year; (b) payments of above-market preferential earnings on
deferred compensation; (c) payments of earnings with respect to long-term
incentive plans prior to settlement or maturation; (d) tax payment
reimbursements; or (e) preferential discounts on stock. Mr. Holden's and
Mr. Porter's other compensation for 2001 includes an auto allowance.
(4) No restricted stock awards were granted in 2001.
(5) Includes options awarded under the 1995 Incentive Option Plan, both prior
and subsequent to amendments to the plan on May 25, 2000. Options generally
vest in annual installments of 20%, beginning on the first anniversary of
the date of the grant, and are exercisable through the tenth anniversary of
the grant, except as noted on the Option Grants In Last Fiscal Year table,
below. To the extent not already exercisable, the options become
exercisable upon death or disability or, to the extent not prohibited by
the OTS, upon the occurrence of a change in control.
(6) Includes the fair market value, for each respective year, of shares of
Common Stock allocated pursuant to the ESOP. As of the record date of March
25, 2002, the 2001 ESOP allocation was not yet processed.
(7) Mr. Holden's 2001 bonus includes $71,395 (4,950 PEP shares) paid in Common
Stock in lieu of certain cash for his base salary merit increase in 2001
and for his incentive compensation through the OICP.
(8) Mr. Andino's bonus includes $54,108 (3,973 PEP shares) paid in Common Stock
in lieu of certain cash for his base salary merit increase in 2001 and for
his incentive compensation through the OICP. Of these shares, 3,000 shares
of stock were vested out of a long-term stock compensation plan that was
awarded in 2000.
(9) Ms. Grill resigned from her position with the Bank and Portola Investment
Corporation in February 2002. Other Annual Compensation for Ms. Grill
reflects payment of a relocation allowance in 2001.
(10) Mr. Porter's Other Annual Compensation for 2001 included $6,402 in
relocation benefits and $6,000 in auto allowance. Mr. Porter's bonus of
$38,000 for fiscal 2001 was paid early in fiscal 2002.
(11) Mr. Tinkey's 2001 bonus reflects 340 shares of Common Stock granted in lieu
of certain cash for his merit increase in 2001. Mr. Tinkey's bonus of
$35,000 for fiscal 2001 was paid early in fiscal 2002.
14
Transactions With Named Executive Officers
The Bank, like many financial institutions, extends loans to its employees.
All loans by the Bank to its executive officers are subject to regulations
restricting loans and other transactions with affiliated persons of the Company.
Savings institutions such as the Bank are permitted to make loans to executive
officers on preferential terms, provided the extension of credit is made
pursuant to a benefit or compensation program of the Bank that is widely
available to employees of the Bank or its affiliates and does not give
preference to any executive officer, director, or principal stockholder over
other employees of the Bank or affiliate.
The Bank maintains an employee loan benefit program. Under this program,
employees receive certain reductions in interest rates and / or loan fees on
loans depending upon the type of loan product selected. Rate reductions under
this program are only available during the term of employment. Upon termination,
resignation, or retirement, the loan rate reverts to the market rate that
existed at the time the loan was originated.
All other loans to executive officers, directors, and principal stockholders
("insiders"):
o have been made in the ordinary course of business
o were made on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with the Bank's other customers
o do not involve more than the normal risk of default of present other
unfavorable features.
Credit commitments to executive officers, directors, and principal stockholders
of the Company and their affiliates amounted to approximately $2.0 million or
3.9% of the Company's equity at December 31, 2001.
The following table sets forth the indebtedness of executive officers and
affiliates who are or were indebted to the Bank at any time since January 31,
2001 in an aggregate amount in excess of $60,000 and whose loans were made
pursuant to the employee loan program.
------------------------------- ------------------- ---------------------- ---------------------- ----------------------
Largest Amount Outstanding Interest Rate
Outstanding Since Balance At At
Name and Position Type of Loan December 31, 2000 December 31, 2001 December 31, 2001
------------------------------- ------------------- ---------------------- ---------------------- ----------------------
C. Edward Holden Home Mortgage $550,000 $546,200 6.13%
Director
President Home Equity
Chief Executive Officer Line Of Credit 100,000 40 6.00%
------------------------------- ------------------- ---------------------- ---------------------- ----------------------
Mark R. Andino Home Mortgage 508,529 501,393 6.13%
Chief Financial Officer
Treasurer
------------------------------- ------------------- ---------------------- ---------------------- ----------------------
Susan F. Grill(1) Home Mortgage 350,000 350,000 4.88%
Director of Retail Banking
President of Portola Home Equity
Investment Corporation Line Of Credit 0 0 4.75%
------------------------------- ------------------- ---------------------- ---------------------- ----------------------
Ben A. Tinkey(2) Land Loan 159,000 0 N/A
Chief Loan Officer
------------------------------- ------------------- ---------------------- ---------------------- ----------------------
------------------------------------
(1) Ms. Grill resigned from Monterey Bay Bank and Portola Investment
Corporation in February 2002.
(2) Mr. Tinkey paid off his land loan in 2001.
15
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
to the Named Executive Officers during 2001 and the projected value of those
options at assumed annual rates of appreciation.
----------------------------------------------------------------------------------------------- -------------------------
Potential Realizable
Value at Assumed Annual
Individual Grants Rates of Stock Price
Appreciation for Option
Term(1)
----------------------- ---------------------- -------------------- ------------- ------------- ------------ ------------
Number of Securities Percent of Total
Underlying Options Options Granted to Exercise
Granted(2) Employees in Price Per Expiration
Name Fiscal Year Share Date 5% 10%
----------------------- ---------------------- -------------------- ------------- ------------- ------------ ------------
C. Edward Holden 15,000(3) 24% $ 15.88 11/29/06 $ 38,243 $ 110,636
----------------------- ---------------------- -------------------- ------------- ------------- ------------ ------------
Mark. R. Andino 7,500(3) 12 15.88 11/29/06 19,121 55,318
----------------------- ---------------------- -------------------- ------------- ------------- ------------ ------------
Susan F. Grill 10,000 16 12.65 2/12/11 60,823 171,780
----------------------- ---------------------- -------------------- ------------- ------------- ------------ ------------
David E. Porter 1,500 2 15.88 11/29/11 11,462 32,360
----------------------- ---------------------- -------------------- ------------- ------------- ------------ ------------
Ben A. Tinkey 1,500 2 15.88 11/29/11 11,462 32,360
----------------------- ---------------------- -------------------- ------------- ------------- ------------ ------------
--------------------------
(1) "Potential Realizable Value" is disclosed in response to SEC regulations
that require such disclosure for illustration only. The values disclosed
are not intended to be, and should not be interpreted as, representations
or projections of the future value of the Common Stock or of the stock
price. Amounts are calculated at 5% and 10% assumed appreciation of the
value of the Common Stock (compounded annually over the option term) and
are not intended to forecast actual expected future appreciation, if any,
of the Common Stock. The potential realizable value is the difference
between the exercise price and the appreciated stock price at the assumed
annual rates of appreciation multiplied by the number of shares underlying
the options.
(2) Options vest in 20% annual increments, beginning one year from the date of
grant, except as noted. Options are exercisable through the tenth
anniversary of the date of grant, except as noted.
(3) Represents non-statutory stock options that except as noted were fully
vested on the date of grant. These options are exercisable through the
fifth anniversary of the date of grant.
FISCAL YEAR END OPTION/SAR VALUES
The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding options held by the Named
Executive Officers as of December 31, 2001. Also reported are the values for
"in-the-money" options that represent the positive spread between the exercise
price of any such existing stock options and the year-end price of the Common
Stock. At December 31, 2001, 98,084 options were exercisable by the Named
Executive Officers.
------------------------ ---------------------------------- ------------------------------------
Securities Underlying Number of Value of Unexercised In-the-Money
Unexercised Options/SARs at Options/SARs at Fiscal Year End
Fiscal Year End (#) ($) (1)
------------------------ --------------- ------------------ -------------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------ --------------- ------------------ -------------- ---------------------
C. Edward Holden 43,792 46,208 $143,532 $316,218
------------------------ --------------- ------------------ -------------- ---------------------
Mark R. Andino 16,500 36,000 47,250 189,000
------------------------ --------------- ------------------ -------------- ---------------------
Susan F. Grill(2) 0 10,000 0 28,500
------------------------ --------------- ------------------ -------------- ---------------------
David E. Porter 4,000 17,500 17,160 68,640
------------------------ --------------- ------------------ -------------- ---------------------
Ben A. Tinkey 33,792 5,500 214,159 17,160
------------------------ --------------- ------------------ -------------- ---------------------
(1) Market value of underlying securities at fiscal year end $15.50 minus the
exercise price per share of each option.
(2) Ms. Grill resigned from Monterey Bay Bank and Portola Investment
Corporation in February 2002.
16
Audit Committee Report
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filings under the Securities Act of 1933 or under the Securities
Act of 1934, except to the extent we specifically incorporate this Report by
reference.
The Board of Directors, in its business judgment, has determined that each
member of the Audit Committee is "independent," as defined under the listing
standards of The NASDAQ Stock Market, Inc. The Audit Committee operates pursuant
to an Audit Committee Charter that was revised and adopted by the Board on June
14, 2000. A copy of the Audit Committee Charter was attached to the Company's
proxy statement dated April 16, 2001. The Audit Committee reviews and assesses
this Charter at least annually and recommends any proposed changes to the full
Board of Directors for approval. The Company's management is responsible for its
internal accounting controls and the financial reporting process. The Company's
independent accountants, Deloitte & Touche, LLP, are responsible for performing
an audit of the Company's consolidated financial statements in accordance with
auditing standards generally accepted in the United States and for expressing an
opinion as to their conformity with generally accepted accounting principles.
The Audit Committee's responsibility is to monitor and oversee these processes.
In keeping with that responsibility, the Audit Committee has reviewed and
discussed the Company's audited consolidated financial statements as of and for
the fiscal year ended December 31, 2001 with management and the independent
accountants. In addition, the Audit Committee has discussed and reviewed with
the independent accountants all communications required by generally accepted
auditing standards, including those described in Statement on Auditing Standards
No. 61, "Communications with Audit Committee," as currently in effect, and with
and without management present, discussed and reviewed the results of the
independent accountants' examination of the financial statements. The Audit
Committee has also received the written disclosures from the independent
accountants required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and has discussed with the
independent accountants their independence. The Audit Committee has also
considered whether the provision of non-audit services by the independent
accountants is compatible with maintaining independence between the Company and
the independent accountants.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Company's financial statements has been carried out in
accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that the Company's auditors are in fact "independent."
17
Based on the reports and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Audit Committee
referred to above and in the Audit Committee Charter, the Audit Committee
recommended to the Board of Directors, and the Board has approved, that the
audited consolidated financial statements of the Company be included in the
Annual Report on Form 10-K for the fiscal year ended December 31, 2001 for
filing with the Securities and Exchange Commission. The Audit Committee also
recommended the reappointment, subject to stockholder approval, of the
independent auditors and the Board concurred with such recommendation.
This report is respectfully submitted by the Audit Committee of the Board
of Directors.
Diane S. Bordoni, Chair
Steven Franich
Stephen G. Hoffmann
McKenzie Moss
PROPOSAL 2. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December 31,
2001 were Deloitte & Touche LLP ("Deloitte"). The Audit Committee has determined
that the provision of non-audit services is compatible with maintaining the
principal accountants' independence. Upon recommendation of the Audit Committee,
the Company's Board of Directors has reappointed Deloitte to continue as
independent auditors for the Company and the Bank for the fiscal year ending
December 31, 2002, subject to ratification of such appointment by the
stockholders.
Representatives of Deloitte will be present at the Annual Meeting. They
will be given an opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions from stockholders present
at the Annual Meeting.
Fees to Independent Auditors
The following table sets forth the aggregate fees incurred for audit and
non-audit services provided by Deloitte, who acted as independent auditors for
the fiscal year ending 2001. The table lists audit fees, financial information
systems design and implementation fees, and other fees.
Audit Fees. The audit fees include only fees that are customary under
generally accepted auditing standards and are the aggregate fees the Company
incurred for professional services rendered for the audit of the Company's
annual financial statements for fiscal year 2001 and the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for fiscal year 2001.
Financial Information Systems Design and Implementation Fees. Deloitte did
not perform financial systems design or implementation services in fiscal year
2001.
Other Fees. These services included income tax advice, tax return
preparation, and other compliance and consulting services, including the
provision of certain internal audit services. The Bank chose to outsource its
internal audit services to the firm of BancAudit Associates, LLC, effective June
of 2001, rather than continue to co-source its internal audit function with
Deloitte.
Fiscal Year 2001
----------------
Audit Fees..................................................... $166,750
Financial Information Systems Design and Implementation Fees... 0
All Other Fees................................................. 103,350
Unless marked to the contrary, the shares represented by the enclosed proxy
card will be voted FOR ratification of the appointment of Deloitte & Touche LLP
as the independent auditors of the Company for the fiscal year ending December
31, 2002.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
19
ADDITIONAL INFORMATION
Stockholder Proposals
To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 2003 Annual Meeting of Stockholders, a stockholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice to the Proxy Statement not later than December 10, 2002. Any
such proposal will be subject to Rule 14a-8 under the Exchange Act.
The Bylaws of the Company provide an advance notice procedure for a
stockholder to properly bring business before an Annual Meeting. The stockholder
must give written advance notice to the Secretary of the Company not less than
one hundred 120 days before the date the Company's proxy statement is released
to stockholders in connection with the previous year's annual meeting. If no
annual meeting was held the previous year or the meeting has been changed by
more than 30 calendar days from the previous year's proxy statement, notice must
be received no later than the tenth day following the day on which notice of the
annual meeting was sent by the Company. The advance notice by stockholder must
include the stockholder's name and address, as they appear on the Company's
record of stockholders, a brief description of the proposed business, and the
class and number of shares of the Company's capital stock that are beneficially
owned by such stockholder. In the case of nominations to the Board of Directors,
certain information regarding each nominee must be provided. Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
statement or the proxy relating to an annual meeting any stockholder proposal
that does not meet all of the requirements for inclusion established by the SEC
in effect at the time such proposal is received.
Other Matters Which May Properly Come Before the Meeting
The Board of Directors knows of no business that will be presented for
consideration at the Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you are
requested to return your proxy card promptly. If you are then present at the
Annual Meeting and wish to vote your shares in person, your original proxy may
be revoked by voting at the Annual Meeting.
By Order of the Board of Directors
/s/ Mary Anne Carson
Mary Anne Carson
Corporate Secretary
April 9, 2002
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN, DATE, AND PROMPTLY RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
20